EMBRAER Getting Big Orders for Smaller Jets

New York Times

Brazil Plane Maker Getting Big Orders for Smaller Jets

Mauricio Botelho, chief of Brazil’s aircraft maker Embraer, showed the new plane that is intended to make regional air traffic profitable.

By TODD BENSON
Published: March 18, 2005

SÃO JOSÉ DOS CAMPOS, Brazil – Workers at the sprawling aircraft factory here, some 50 miles northeast of São Paulo, are assembling a new kind of plane that JetBlue Airways is betting will let it take its low-fare, low-cost philosophy to dozens of previously ignored destinations across the United States.

The new plane, by the Brazilian jet maker Embraer, is a far cry from the cramped 50-seater that airlines normally use on shorter hops. In fact, it is roomier than the 156-seat Airbus A320 that JetBlue currently flies. Like it, the Embraer jet will have leather seats and digital entertainment systems for each passenger. But instead of six seats in each row, the new plane will have just four so no passenger has to sit in a middle seat. The result will be a 100-seat regional jet with expanded range and the comfort and feel of a big airliner at a fraction of the cost.

The plane, the Embraer 190, is part of a family of four next-generation, 70-to-118-seat jets that may finally thrust Embraer past its archrival in the regional jet market, Bombardier Inc. of Montreal, and also allow Embraer to gobble up a potentially lucrative aviation niche ignored by the world’s top two aircraft makers, Airbus and Boeing.

“Embraer did its homework,” said Douglas Abbey, a partner at the Velocity Group, an aviation consulting firm in Washington. “They identified a hole in the market and went after it. And they’re just now reaping the rewards because they have an aircraft that embodies all new technology and all new levels of comfort.”

JetBlue will become the first airline to fly the Embraer 190, in October, and plans to put seven into service by year-end. It has 100 on order, for delivery through 2011, and an option to buy 100 more. Analysts say the planes will help JetBlue reshape the aviation industry in the United States by bringing affordable air travel to smaller cities that have long been shunned by budget airlines as too costly.

Discount airlines like JetBlue are not the only ones adding Embraer’s roomier little jets. Major airlines are turning to smaller planes by Embraer and others as they seek to bounce back from the post-9/11 travel slump and avoid losing money on routes where seats outnumber passengers.

Embraer, short for Empresa Brasileira de Aeronáutica, is also pitching the planes to regional carriers looking to carry more passengers and serve longer routes.

Embraer estimates that demand for the jets could exceed 5,800 over the next two decades. It already has firm orders for 343.

[The company said Thursday that profit more than doubled last year, to a record $380.2 million.]

“Regional airlines want to expand, legacy airlines are trying to cut their operational costs, and low-cost airlines are choosing another kind of product to serve smaller markets,” said Maurício Botelho, Embraer’s chief executive. “This is a family of planes that is adapted exactly to that concept.”

Airlines on both sides of the Atlantic have been buying. US Airways has 22 Embraer 170’s – a 72-seat version of the 190, and the only jet in the new family to fly commercially so far – with 63 more on order. Air Canada, shifting to smaller aircraft as part of its restructuring, plans to add 60 of Embraer’s new models (as well as just 30 Bombardier jets). Alitalia of Italy and Cirrus Airlines of Germany have begun flying the 170, and Finnair has 12 on order.

Still, Embraer faces its share of obstacles. Like its peers, Embraer, which gets more than 70 percent of its revenue from commercial jet sales.

For now, Embraer’s new jets are not likely to face much competition. Airbus and Boeing are busy trying to outdo each other with planes that seat hundreds of passengers. And Bombardier, the world’s leading producer of regional jets, currently makes only stretched versions of its older-style 50-seat commuter planes that seat up to 86 passengers.

“When the competition comes to the market, the good news for Embraer is they’ve got probably a five- or six-year lead on anybody,” said Ronald J. Epstein, a Merrill Lynch analyst in New York.

Embraer, which was created by Brazil’s air force in 1969, was privatized in 1994. Mr. Botelho, an engineer with no aviation experience, was brought in, and soon made it a major regional jet maker by selling 50-seat commuter planes. It is now one of Brazil’s most global companies, with more than 14,000 employees in six countries, including the United States .

In the late 1990’s, both Embraer and Bombardier realized that regional airlines wanted larger jets. Although Bombardier got its jets to market quicker, Embraer’s new planes have cockpit technology rivaling that found in Airbus and Boeing jets, wider seats and a new fuselage with a special shape that allows for more head room and cargo space.

Bombardier is trying to raise $2 billion to develop jets with an all-new design that it hopes to put in the sky by 2010. But unlike Embraer’s new planes, Bombardier’s CSeries, with 110 to 135 seats, is intended to be “a mainline carrier,” according to John Paul Macdonald, the spokesman for Bombardier Aerospace.

Bombardier, which has received authorization from its board to start marketing the CSeries, plans to showcase the new plane at the Paris Air Show in June, Mr. Macdonald added. is eyeing a niche that it believes Airbus and Boeing are neglecting by focusing on bigger planes – a niche Embraer specifically avoided when it started developing its new planes – the “big dogs’ yard,” Mr. Botelho calls it. Instead, Embraer chose to go smaller after finding that on average more than 60 percent of all flights in the United States, its biggest market, take off with 70 to 110 passengers.

Analysts expect orders for Embraer’s new jets to jump in the next few years. And there are signs that Embraer, whose big order from Air Canada was widely viewed as a major coup on Bombardier’s home turf, may start winning more of its rival’s most prized customers. In an internal memo that was leaked to the news media, Fred Buttrell, the new president of Comair, a Cincinnati-based regional unit of Delta Air Lines with an all-Bombardier fleet, said Embraer’s new jets were “critical” to the airline’s future.

Nick Miller, a spokesman for Comair, confirmed that it was looking to add 35 jets through 2008, possibly 10 of Bombardier’s 50-seat CRJ200’s and 25 Embraer 170’s, but he said no decision had been made.

http://www.nytimes.com/2005/03/18/business/worldbusiness/18embraer.html